When members of the Winslow Veterans of Foreign Wars post found out that their bookkeeper had stolen more than $7,700, it was a blow emotionally and financially.
“It was really a violation of trust,” said Post Commander Eric Hunt in a recent interview outside of the Waterville District Court.
Nonprofit financial oversight
Some tips for nonprofit groups to avoid embezzlement losses
Keep financial duties separate from other responsibilities
Review of bank statements by at least two individuals
Monitor and record transactions and cash flow
Require regular reports to boards of directors on finances
Train directors on fiscal oversight
Adopt a conflict of interest policy
Source: Maine Association of Non-Profits, Guiding Principles + Practices
Hunt and other members had attended a disclosure hearing for Cara Bird, held to determine her ability to pay back the money she admits she took. Bird’s case has been continued until June.
While the theft may have been shocking, it was far from unusual.
The news came on the heels of several other cases of theft from nonprofits in Winslow and other high-profile thefts in Maine. In March, Charles Spaulding was charged with theft after a Winslow Police investigation into the theft of $15,000 from the Winslow Travel Soccer Club.
In February, Wendi Willette pleaded guilty to stealing as much as $10,000 from the Winslow Wrestling Sports Booster Club, a smaller amount from the China Girls Field Hockey Team and $60,000 in state assistance.
With the exception of the theft of funds from the state, it is no surprise that the embezzlement victims were small, mainly volunteer groups.
Unlike large organizations, small groups often lack the capacity to put checks and balances in place, said Scott Schnapp, the director of the Maine Association of Non-Profits.
“When those structures aren’t in place, it leaves the organization in a risky position,” Schnapp said.
Bird handled the VFW’s accounts for about four years when members started realizing something was wrong.
Vendors started refusing credit for purchases because they hadn’t been paid for earlier deliveries. Then the bank called to say it hadn’t received a mortgage payment. With the VFW’s various enterprises, from hall rentals to bingo and other games, it was easy for money to go missing, Hunt said.
It didn’t take long for the VFW to go over its books and determine Bird was responsible.
She was, after all, the person the organization trusted to manage their books, and she was empowered to write and authorize checks.
Instead of going to the police, the VFW had Bird sign a promissory note last June admitting responsibility for taking the funds and agreeing to pay them back.
“We thought we would be the nice guys,” Hunt said.
But later that month, Winslow Police started investigating allegations that Bird had taken as much as $1,500 from the VFW Ladies Auxiliary during the same time. She was charged with the theft in early December.
SIZE IS NO PROTECTION
The problems at the Winslow VFW were the same as those that confront many small nonprofits and charities. Non-profits are set up around a mission and frequently attract people who have passion for the group’s program, but who may not have managerial or fiscal skills, Schnapp said.
“Oftentimes, because they are very programatically-focused, the administrative side can suffer,” Schnapp said.
In its best practices guide, the Non-Profit Association suggests procedures to mitigate fraud. Among the suggestions are keeping financial duties separate from other responsibilities, monitoring and recording transactions and cash flow, and requiring periodic reports of financial activity to the board of directors.
More than anything, cases when funds have been misappropriated ultimately represent a failure of leadership, Schnapp said.
A problem for the nonprofit sector is that board members sometimes do not take seriously their responsibility for oversight, he said.
“People love to sit on boards, but they don’t always like to do the important work they are responsible for,” Schnapp said.
The issue of fraud and embezzlement in small organizations is probably more widespread than people would like to believe, said Peter Pitegoff, Dean of the University of Maine School of Law, who specializes in business and nonprofit law.
“We see the tip of the iceberg,” Pitegoff said.
But even large, well-established organizations can fall prey to fraud and abuse.
For example, earlier this month Russell Brace, the former president of Camden-based United Midcoast Charities, which distributes money to 50 smaller nonprofits, agreed to pay $4.6 million to the company to settle a lawsuit that he stole more than $3.8 million over a 13-year period.
In another case, Stacey Backman, a former accountant at Coastal Enterprises Incorporated, a Wiscasset-based financial nonprofit, pleaded guilty last October to stealing more than $365,000 over a period of four years.
Pitegoff, who also serves on CEI’s board of directors, said the company has since tightened internal controls, but its story is a cautionary tale about the risk groups face
“Any organization is susceptible to bad actors,” Pitegoff said.
Mitigating risk means putting enough checks and balances in place to make theft unattractive, said Tim Lecrone, operations manager at the Alfond Youth Center in Waterville.
Every deposit and withdrawal at the center has to go through multiple levels of oversight that include upper-level management, Lecrone said.
“No one person has the authority to sign off on a transaction,” he said. “That really takes the temptation out of people’s hands.”
BUSINESSES SUSCEPTIBLE
Small businesses run the same risk of embezzlement because of inadequate financial controls, although thefts from nonprofits tend to generate bigger headlines.
People tend to regard theft from a sports booster club or veterans’ organization as more egregious than from a for-profit company, but the attention helps create an unfair perception that the nonprofit sector is rife with abuses, Schnapp said.
John Entwistle, at the Maine Small Business Development Center in Portland, said many small, growing companies are especially at risk for fraud and embezzlement. Small business owners, like charities, sometimes hand financial responsibility over to one bookkeeper and focus on their product, Entwistle said.
“Unfortunately, that’s a function that a lot of owners turn over to someone else,” Entwistle said. “It’s a situation that’s ripe for fraud.”
In the wake of its own experience, the Winslow VFW has tightened up its accounting practices. The board of trustees takes a more active role in reviewing revenues and expenses, including requiring a receipt for any cash the group takes in to provide a paper trail.
“We’re getting more people involved,” Hunt said.
But the damage has already been done. Although $7,000 might not seem like a lot, it has forced the group to scale back the fundraising it does for other organizations in order to focus on keeping its own accounts stable, said Jeff Flye, the manager of the VFW’s banquet hall on Veteran Drive.
“It’s really hard for groups like us to survive in this day and age, so when something like this happens, it hits us hard,” Flye said.
“We’d like to put our faith and trust in people, but we’ve lost that now.”
Peter McGuire — 861-9239
pmcguire@centralmaine.com
Twitter: @PeteL_McGuire
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